sharing in governance of extractive industries
Looking for mind closure
Sometimes you don’t need a panel; all you need is a good beverage.
On Monday, I was intrigued by the silence in response to a question about why companies don’t pay miners in Africa the same wages they pay miners in Australia, given that the respective end products are the same price everywhere, all things being equal. I had expected a practiced answer to it because in some ways it is a fundamental question. But, I must admit, it’s also an unusual one, speaking as someone who has been to his fair share of extractive industries discussions.
The question did, however, make for an interesting private discussion over beverages during the IFC’s CSR networking cocktail reception on Wednesday night. The takeaway was that there are several economic reasons for off-shoring. For instance, one could argue that a Western shoe company shouldn’t pay the same wages in Niamey as it would in Miami because that would disrupt the Nigerien economy: doctors would probably de-robe and line up at the factories for work. The bottom line is that if companies have to pay the same in every country, then why bother move?
The uniqueness of extractive industries is that the companies don’t necessarily move processes in pursuit of lower labor cost. They go where the minerals are. That means a company could very well be conducting similar operations in Australia and Angola at the same time. To recalibrate the original question, the lower labor cost in Angola will then mean the company is making more profit there than in Australia, so shouldn’t it pay higher wages in Anglola?
With the foregoing background, the strongest argument was that it comes down to risk! The higher risk in certain countries should lead to higher rewards. And the risk doesn’t only have consequences if it is actually materialized. In fact, the company has to spend more cash up-front to secure insurance against these risks. Besides, because of the lack of domestic capacity, the company probably has to bring in expatriates at a premium. In fact companies have to pay for some of these risks upfront through insurance.
This is by no means a full treatment of the original question, but I thought it was an interesting answer, and I would love to hear some more perspectives.
Where is Governance?
To the question Michael posed in his pre-Indaba blog about whether governance issues are being addressed, it has indeed been touched on in different ways. I also spent most of my Wednesday conducting video interviews to explore governance through the eyes of various stakeholders. (Coming soon on GOXI)
Where are the Chinese?
With the preponderance of stories about China’s quest for Africa’s minerals, I can’t help but notice their conspicuous absence at the Indaba. Someone mentioned it’s because they don’t need financing. Maybe….but what about Chinese as financiers? Again it was argued that they are only now entering that side of the business. I’m still not fully convinced. Skeptical minds think there was a memo from Beijing to stay away so as not to look threatening. But seriously, I’d be curious to find out what the case has been at previous Indabas and whether we should read the Indaba leaves as a bellwether for Chinese involvment in Africa's minerals OR the appearance of Chinese engagement inAfrica's minerals. Intriguing.
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